Credit growth of banks expected to reach 13 Pc in FY26 from 11.2 pc in FY25: Report

ANI March 31, 2025 155 views

India's banking sector is poised for significant credit growth in the upcoming financial year, with projections reaching 13% according to a recent Anand Rathi report. The forecast is underpinned by supportive regulatory measures, government spending initiatives, and improving liquidity conditions. Both secured and unsecured lending segments are showing promising signs of recovery and expansion. The report suggests that strategic interventions by the Reserve Bank of India and government policies will play a crucial role in driving this anticipated credit growth.

"Coupled with government capex, this can potentially drive 100bps higher credit growth to 13% in FY26" - Anand Rathi Report
New Delhi, March 31: The credit growth of India's banking sector is likely to rise to 13 per cent in the financial year 2025-26 (FY26) from the current level of 11.2 per cent, according to a report by Anand Rathi.

Key Points

1

Liquidity infusion and RBI measures supporting banking sector expansion

2

Government tax policies expected to boost consumption

3

Secured and unsecured lending showing positive momentum

4

Deposit rates potentially nearing peak levels

The report highlighted key factors contributing to this growth, including liquidity infusion, regulatory easing, and government spending.

In the past three months, the banking sector has witnessed strong liquidity support due to measures like the Cash Reserve Ratio (CRR) cut and a reduction in Risk-Weighted Assets (RWA) for lending to Non-Banking Financial Companies (NBFCs). These steps indicate a more accommodative regulatory approach by the Reserve Bank of India (RBI).

Additionally, the government's tax reduction policy, which is expected to boost consumption by Rs 900 billion, the report said "This, coupled with the government's capex can potentially drive 100bps higher credit growth to 13 per cent in FY26e vs. 11.2 per cent now".

The report suggested that credit growth is expected to pick up in the second half of FY26 as liquidity conditions improve. While unsecured lending such as personal loans (PL) and credit card (CC) loans have shown signs of bottoming out, they are likely to gain momentum, particularly for large banks.

On the other hand, secured lending, including loans to Micro, Small, and Medium Enterprises (MSME) and housing loans, remains stable and is expected to receive further support from RBI's initiatives.

Another key trend observed in the banking sector is the relationship between term deposit rates (for 1-3 years) and the weighted average term deposit rate (WATDR). With the increase in deposit rates slowing down, the report suggests that interest rates may be nearing their peak.

Despite tight liquidity conditions in certain months, certificate of deposit (CD) rates have also shown signs of stabilizing. This could lead to a marginal increase in deposit growth as liquidity conditions ease further.

The report also sheds light on trends in the Credit-Deposit (CD) ratio. While private banks are reducing their CD ratios, public sector banks (PSBs) are increasing them, which is restricting overall credit growth. Private banks, which have a higher proportion of External Benchmark Lending Rate (EBLR)-linked loans (approx. 70 per cent) compared to PSBs (approx. 50 per cent), could face pressure on their Net Interest Margin (NIM) as interest rates decline.

However, the report states that gradual rate cuts will allow banks to adjust their deposit and lending rates, preventing any sharp decline in NIM.

Furthermore, the outstanding amounts for personal loans and credit cards are expected to rise from the third quarter of FY25, which will provide additional support to NIM.

Overall, with improving liquidity, regulatory support, and government initiatives, the banking sector is set to witness higher credit growth in the coming years.

Reader Comments

R
Rahul K.
This is great news for the economy! More credit availability means businesses can expand and create jobs. Though I hope banks maintain strict lending standards to avoid NPA issues later. 👍
P
Priya M.
Interesting analysis but I'm concerned about the focus on unsecured lending. Credit cards and personal loans can be risky if not managed properly. Hope RBI keeps close watch on this growth area.
S
Sanjay T.
Finally some positive news for MSME sector! The housing loan stability is good too. As a small business owner, easier credit access could really help us recover from pandemic losses.
A
Ananya P.
The report seems optimistic but I wonder how much of this growth will actually benefit common people. Most credit still goes to big corporations while small borrowers struggle with paperwork and approvals.
V
Vikram S.
Good to see deposit rates stabilizing! As a retiree depending on FD interest, the past year's rate hikes were welcome. Hope any future cuts are gradual as mentioned in the report.
N
Neha R.
The difference between private and public banks' strategies is fascinating! Shows how competition benefits customers. Though I hope PSBs don't take excessive risks trying to catch up. 🏦

We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.

Tags:
Banking Sector Credit Growth RBI Anand Rathi Financial Forecast Indian Economy Lending Trends
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